The Reserve Bank of Australia (RBA) has cut Australia's benchmark cash rate by 25 basis points to 2.5% as expected.
The move brings it in line with New Zealand's Official Cash Rate, which is also at 2.5%.
Here's the RBA's full statement
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 2.5 per cent, effective 7 August 2013.
Recent information is consistent with global growth running a bit below average this year, with reasonable prospects of a pick-up next year. Commodity prices have declined but, overall, remain at high levels by historical standards. Inflation has moderated over recent months in a number of countries.
Globally, financial conditions remain very accommodative, though the recent reassessment by markets of the outlook for US monetary policy has seen a noticeable rise in sovereign bond yields, from exceptionally low levels. Volatility in financial markets has increased and has affected a number of emerging market economies in particular.
In Australia, the economy has been growing a bit below trend over the past year. This is expected to continue in the near term as the economy adjusts to lower levels of mining investment. The unemployment rate has edged higher. Recent data confirm that inflation has been consistent with the medium-term target. With growth in labour costs moderating, this is expected to remain the case over the next one to two years, even with the effects of the recent depreciation of the exchange rate.
The easing in monetary policy over the past 18 months has supported interest-sensitive spending and asset values, and further effects can be expected over time. The pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households.
The Australian dollar has depreciated by around 15 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.
The Board has previously noted that the inflation outlook could provide some scope to ease policy further, should that be required to support demand. At today's meeting, and taking account of recent information on prices and activity, the Board judged that a further decline in the cash rate was appropriate. The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.
18 Comments
Cuts, cuts, cuts ....
NZ will be cutting as well within 12 months.
Has the global outlook really improved?
Do we want a local depression?
How's the CPI going?
How's the consumer spending going?
UK .25%, USA .25%, Germany .5% ECB .5%
Australia 2.5% High
NZ 2.5% High
Start listing some of the other comparative stats Mortgage Belt that actually influence interest rates and your numbers might actually mean something. I mean the outlook for the likes of inflation, growth and debt etc relative to the zero interest rate economies for instance.
Grant, the items you suggest cancel out I suspect. So you are not making sense to me, for instance if OZ is cutting and the global issues are similar...why shouldnt NZ cut? are you suggesting rises? because I cant see much sign of it yet....While we are under 1% then it makes no sense until we are are above 1% and with signs of further rises, eg unemployment right back down....fat chance IMHO.
For me therefore our inflation is under the lower target, ergo we should be cutting. The difference NZ to OZ is our housing isnt yet suffering and neither is our exports unduly...yet.
regards
Steven - yes I am suggesting rises probably sometime next year, and zero chance of a cut without some disaster occuring, something only the foolish would try to forecast. Whether we believe economists or not, I really don't care, but what I do take notice of is the market, and the market is pricing in the first hike for March and then a total of four in 2014 - do you know more?. Things can change but I have more faith in the market, who actually are betting money on that view, than you or my predictions, or that of any blogger especially one or two on here who have no basic understanding of what drives them - they think the banks do. .
Economists have got the CPI pretty right of late in their models, but the CPI is backward looking and the RBNZ has to look forward and their models are saying last qtr was the low point. Cutting at the low in the cycle is something no central bank will do quite rightly. Unemployment has probably stabilised and is on a very slow downtrend now, be it that this week's employment data will probably show a minutely higher one, we'll see. If you can't see why they shouldn't cut look at the housing market and you'll see why they will unless your a believer that LVRs will have a major impact upon that - I don't and I suspect neither do they which is the reason that the RBNZ gave a pretty clear signal a couple of week's ago that they're in a tighting mindset.
As regards Australia cutting, I didn't see one blogger on here stating the RBNZ should hike when the RBA hiked six times through 2009/10. They obviously felt that Australia was in a different position to NZ - they were correct it was, and is again now. And if you look at historic relativities NZ rates almost always trade higher than Australian rates so it would be entirely appropriate for them to cut to at least to 2.00% while we're still at 2.50%
So many calamities that help the mortgagebelt.
Earthquakes, GFCs, dirty pipes, all benefiting the mortgage-holder.
What would the NZ OCR be without the Chch earthquake? 4.5% - the NZRB would have completely destroyed the NZ economy by now if we had not had the Chch earthquake to force their hand.
It takes disasters for banks to charge reasonable interest rates?
Westpac Australia announces cuts to Floating rate to 5.98% (corresponding Australia OCR = 2.5%)
Westpac NZ Floating rate of 6.24% (NZ OCR also 2.5%) so Kiwis are good for another extra .26% on their floating rate. That's because of .... extra margins to be made out of NZ mortgage holders [they don't know any better - & the paid media are brainwashing the consumers that they have such "low" interest rates)
Why does NZ tolerate such high interest rates?
Why are our floating rates so high?
Perhaps, that is a result of being partially or fully owned by our neighbours and other overseas companies. Add in private investors (including overseas) to the power mix and there you have it: Rising power prices. Contrary to Steven Joyce who believes greater competition fuels cheaper power..
Our Big four banks, supermarkets, mobile phone and broadband companies, fuel companies plus the Harvey Normans, Bunnings...the list goes on....
We as a country have sold our soul to the big fat greedy fella (probably the same bloke who streaked through Game 3 of the Origin).
Put yourself in their shoes - who better to rip off...your local folk or some tin-pot country living a few thousand miles away.. in good ol' NZ where our relaxed attitudes to everything results in apathy and conformity.
MortgageBelt - I've got one year fixed here in Adelaide at 5%.
I suspect the RBA will cut again before year's end. The Aus economy is certainly weakening. How NZ economists think NZ will prosper - with unemployment reducing to between 5% and 6% by end of 2013 - whilst Aus weakens is anyone's guess. What's the old adage, Aus gets the flu and NZ catches a cold?
Bank Funding costs are a bit of a black box, as banks do not allow information specifically which wholesale funding loans fund which mortgage segments.
Even the Reserve Bank doesn't actually know how exactly the wholesale rates are "black-box converted" by trading banks:
"Another key issue is whether, and if so how much the relationship between mortgage rates and funding costs changed following the GFC. A simple method to try to capture this is to include a dummy variable for the postGFC period. This dummy was not statistically significant, possibly because the structural break is captured by the widening in banks’ CDS spreads after the crisis. Future work using more sophisticated techniques could test for changes in the relationship"
http://www.rbnz.govt.nz/research_and_publications/analytical_notes/2012…
If the Supervisory Bank has no clue on bank margins, how does the average mortgage-holder judge whether the cost of money being charged is reasonable, bench-marked to other economies?
Do 5 year fixed rate mortgages really all get funded by the equivalent long-term wholesale loans? Or is it really mixed - funded from a variety of sources? If so, then the so-called "break-fees" are a bit of a farce really.
The RBNZ directly supervises the NZ banks and has pretty full access to their data. And yes, banks do hedge their 5yr fixed rate risk in the market unless their treasury dealers decide to carry some short-term risk. Break costs are a pretty simple basic calculation and are recouping a cost to the bank if broken early - the more interesting question if you enjoy bank bashing, is why don't they pay out break profits ?
exactly Boatman. Aus remains a major export market for NZ. So exporters will be hit, whether that hit is minor. moderate or major.
And NZ no longer has the employment safety valve of Aus.
Throw in the dirty pipe debacle.
And tell me how GDP growth for NZ is looking rosy, and how unemployment will end up between 5-6% by year's end as predicted by some of our esteemed economists at the start of this year.
Now if the govt had made the necessary moves in housing 2-3 years ago - more state house building, and properly reforming urban planning to help get the private housing sector moving - then we would be seeing construction helping plug some of the holes WRT growth and employment
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